The FAA shuts down a leading charter operator

Recent developments signal significant changes in the aircraft charter industry-changes that could affect you if you're either a charter customer or an owner who makes his airplane available for charter.

The first event was the FAA finally revealing in early October the nature of its seven-month investigation of AMI Jet Charter, a Burlingame, Calif. charter and management company that TAG Aviation USA partially owned. Before then, the FAA would acknowledge only that it was investigating AMI; it refused to say why. Industry experts knew that the agency was trying to find fault with AMI's operational control over its charter flights, and that was, in fact, one of the major problems that the FAA has now said it uncovered at AMI.

FAA regulations require charter companies to maintain "control over the operational functions performed in providing that transportation." This means that charter operators "must have a system and/or procedures for the exercise of authority over the initiation, conduct and termination of a flight."

The FAA has spent lots of time and effort trying to educate the charter industry about operational control by holding seminars, publishing guidance material and investigating operators. The impetus for all this activity was a February 2005 accident in which a Bombardier Challenger 600 flown by a noncertified operator-Platinum Jet Management-ran off the runway during takeoff from New Jersey's Teterboro Airport, rolled through the airport fence, across a busy street

and crashed into a building, severely injuring one person in a car that the airplane hit. Platinum Jet had signed an agreement to place the Challenger on the charter certificate of Darby Aviation, yet according to the FAA and the accident report, Darby did not provide the required operational control for the flight.

The FAA's actions since that accident suggest that the agency strongly believes it would not have occurred if Platinum Jet and Darby had exercised proper operational control. The probable cause of the accident was determined to be the pilots' failure to calculate the location of the center of gravity for weight and balance purposes prior to takeoff, and that too much weight was concentrated in the front of the airplane, making it nearly impossible to take off at normal speed. As part of the operational control process, the pilots were required to provide a copy of their weight-and-balance calculations to the charter company, which means, of course, that they would have had to calculate the location of the center of gravity.

In addition to its educational efforts, the FAA has been conducting special emphasis inspections of all charter operators to ensure that they are complying with the latest operational-control guidance. The FAA wouldn't say whether its investigation of AMI was just a lengthy special emphasis inspection, but the investigation culminated in suspension of the company's charter certificate on October 4 and revocation of the certificate eight days later. This effectively put AMI out of the charter business, grounding all 79 of its airplanes. AMI customers were probably not pleased that the FAA listed the airplanes, including the names of their registered owners, in the publicly released revocation notice.

The charter industry expressed much confusion over the FAA's action against AMI, wondering why, if the agency felt AMI was such a risk to the flying public, it waited seven months to revoke the company's charter certificate. The FAA itself appeared to be confused because the suspension notice focused on seemingly insignificant issues that AMI was easily able to refute in an appeal, yet the revocation notice cited a completely different issue: foreign influence over AMI's operational control.

The FAA is part of the Department of Transportation, and DOT rules don't allow majority foreign ownership of U.S. air carriers, including charter operators. A Swiss company called TAG Aviation Holding owned TAG Aviation USA, which itself owned 49 percent of AMI. The FAA claimed that foreign-owned TAG Aviation USA was exercising operational control over AMI flights and that this was so dangerous to the public that it had no choice but to shut down AMI's charter operations.

Then on October 22, another major event happened: fast-growing charter/management company Sentient Flight Group announced that it had agreed to buy TAG Aviation USA's management businesses from TAG Aviation Holding. The deal, which is expected to be finalized before the end of 2007, covers "substantially all the operating assets of TAG Aviation USA, including all of its management contracts and AMI Jet Charter and all of its charter management agreements." Sentient added that "AMI Jet Charter...will no longer be in operation." It noted that it planned to retain many TAG Aviation USA employees, but it didn't reveal the fate of the 300 AMI employees. The aircraft that had been on AMI's charter certificate were to be transferred to one of Sentient's charter companies, according to Sentient.

A day after announcing the plan to buy the TAG Aviation USA businesses, Sentient revealed another surprise, announcing that it had completed the purchase of Hawker Beech- craft's charter/management division. This move added another 22 aircraft to Sentient's fleet, plus all of the Hawker Beech-craft division's employees.

Naturally, Sentient is taking great care to ensure that it complies with all FAA regulations. AMI thought it was doing that, too, but Sentient doesn't face the same foreign ownership situation as AMI. According to Sentient, the purchase of AMI's businesses "will provide TAG [Aviation] USA with a favorable solution to an operational control matter regarding operating authority of its affiliated certificate holder, AMI Jet Charter-which is largely related to TAG [Aviation] USA's foreign ownership by Swiss-based TAG Aviation Holding."

In an October 19 letter to TAG Aviation USA employees, Sentient CEO Steven Hankin admitted "that this may be bittersweet news to all of you. On the one hand, it begins to provide resolution and closure to a very difficult period in TAG's history. On the other hand, it is also an end to TAG USA as an independent company."

The issue of operational control and what happened to AMI isn't of import just to charter operators or companies like TAG Aviation Holding, which probably sold TAG Aviation USA for much less than it could have realized had AMI remained in the FAA's good graces. If you make your airplane available to a charter operator, it is important in terms of liability protection and the value of your asset to make sure that you are working with a safe and rules-compliant operator. Even though AMI had an excellent reputation and clearly wasn't operating in the manner of a Platinum Jet, when the FAA put AMI under its microscope, investigators were able to find fault. This suggests that in order to prevent another case like Platinum Jet, the FAA is going to continue holding the charter industry to the highest standards of regulatory compliance, especially with regard to foreign influence over operational control.

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““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.”
—David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price
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